ISLAMABAD: The Asian Development Bank has projected Pakistan’s economy to grow by 3.5% in FY2026 and 4.5% in FY2027, while cautioning that a prolonged conflict in the Middle East could heighten energy price volatility and strain the country’s external position.
In its Asian Development Outlook April 2026, the lender said growth would be supported by a faster-than-expected recovery in manufacturing, increased construction activity and rising private investment. These gains, it noted, stem from improved macroeconomic stability and renewed business confidence across key sectors.
Moreover, large-scale manufacturing rebounded strongly in the first half of FY2026, while fiscal incentives and post-flood reconstruction efforts boosted construction. On the demand side, private investment is expected to increase as reduced government borrowing allows greater credit flow to businesses, particularly small and medium enterprises and agriculture.
However, the ADB warned that inflation could edge up after a sharp decline in FY2025. It forecast inflation at 6.4% in FY2026 and 6.5% in FY2027, driven by stronger demand and potential disruptions to fuel and wheat supplies, especially from regions near the Strait of Hormuz.
Furthermore, the bank identified the Middle East conflict as a key external risk, noting it could raise energy and fertiliser costs, suppress industrial and agricultural output, and reduce remittance inflows from Gulf economies. This, in turn, could widen the trade and current account deficits.
Despite these risks, the report highlighted improved macroeconomic indicators in FY2025, including higher growth, lower inflation and a current account surplus. It also noted progress under the International Monetary Fund programme.
Nevertheless, the ADB urged continued structural reforms in energy, taxation and state-owned enterprises to sustain stability and avoid future economic imbalances.
